(Contracting, Subcontracting, Labor-Only Contracting, etc.

37. Serrano vs. NLRC, 323 SCRA 445 G.R. No. 117040 ; January 27, 2000
RUBEN SERRANO, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION and ISETANN DEPARTMENT
STORE, respondents. G.R. No. 117040, EN BANC, January 27, 2000
FACTS: Serrano was a regular employee of Isetann Department Store as the head of Security Checker. In 1991, as a cost-cutting
measure, Isetann phased out its entire security section and engaged the services of an independent security agency. Petitioner filed
a complaint for illegal dismissal among others. Labor arbiter ruled in his favor as private respondent Isetann failed to establish that
it had retrenched its security section to prevent or minimize losses to its business; that private respondent failed to accord due
process to petitioner; that private respondent failed to use reasonable standards in selecting employees whose employment would
be terminated. NLRC reversed the decision and ordered petitioner to be given separation pay.
ISSUE: Whether or not the hiring of an independent security agency by the private respondent to replace its current security
section a valid ground for the dismissal of the employees classed under the latter. (YES)
RULING: An employer’s good faith in implementing a redundancy program is not necessarily put in doubt by the availment of
the services of an independent contractor to replace the services of the terminated employees to promote economy and efficiency.
Absent proof that management acted in a malicious or arbitrary manner, the Court will not interfere with the exercise of judgment
by an employer. If termination of employment is not for any of the causes provided by law, it is illegal and the employee should
be reinstated and paid backwages. To contend that even if the termination is for a just cause, the employee concerned should be
reinstated and paid backwages would be to amend Art 279 by adding another ground for considering dismissal illegal.
If it is shown that the employee was dismissed for any of the causes mentioned in Art 282, the in accordance with that article, he
should not be reinstated but must be paid backwages from the time his employment was terminated until it is determined that the
termination of employment is for a just cause because the failure to hear him before he is dismissed renders the termination
without legal effect.

38. Baguio vs. NLRC, G.R. No. 79004-08, Oct. 4, 1991 (202 SCRA 465)
BAGUIO VS NLRC, G.R. Nos. 79004-08. October 4, 1991

FACTS: Private respondent Feliciano LUPO, a building contractor, entered into a contract with GMC, a domestic
corporation engaged in flour and feeds manufacturing, for the construction of an annex building inside the latter’s plant
in Cebu City. In connection with the aforesaid contract, LUPO hired herein petitioners either as carpenters, masons or
laborers.

LUPO terminated petitioners’ services, on different dates. As a result, petitioners filed Complaints against LUPO and
GMC before the NLRC for unpaid wages, cost of living allowance (COLA) differentials, bonus and overtime pay.

Executive Labor Arbiter found LUPO and GMC jointly and severally liable to petitioners. However, the Third Division
NLRC absolved GMC from any liability. It opined that petitioners were only hired by LUPO as workers in his
construction contract with GMC and were never meant to be employed by the latter. Hence, the Petition for Certiorari.

ISSUE: WON there is a liability of an employer in job contracting, vis-a-vis his contractor’s employees (YES)

RULING: The Supreme Court upholds the solidary liability of GMC and LUPO for the latter’s liabilities in favor of
employees whom he had earlier employed and dismissed. Recovery, however, should not be based on Article 106 of
the Labor Code. This provision treats specifically of "labor-only" contracting, which is not the set-up between GMC and
LUPO.

Art. 106. Contractor or subcontractor. — Whenever an employer enters into a contract with another person for the
performance of the former’s work, the employees of the contractor and of the latter’s subcontractor, if any, shall be
paid in accordance with the provisions of this Code.

"In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this
Code, the employer shall be jointly and severally liable with his contractor or subcontractor to such employees to the
extent of the work performed under the contract, in the same manner and extent that he is liable to employees directly
employed by him.
In other words, a person is deemed to be engaged in "labor-only" contracting where (1) the person supplying workers
to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work
premises, among others; and (2) the workers recruited and placed by such person are performing activities which are
directly related to the principal business of such employer.

Here, Since the construction of an annex building inside the company plant has no relation whatsoever with the
employer’s business of flour and feeds manufacturing, "labor-only" contracting does not exist. Article 106 is thus
inapplicable. Instead, it is "job contracting," covered by Article 107.

Art. 107. Indirect Employer. — The provisions of the immediately preceding Article shall likewise apply to any person,
partnership, association or corporation which, not being an employer, contracts with an independent contractor for the
performance of any work, task, job or project.

In this case, GMC qualifies as an "indirect employer." It entered into a contract with an independent contractor, LUPO,
for the construction of an annex building, a work not directly related to GMC’s business of flour and feeds
manufacturing. Being an "indirect employer," GMC is solidarily liable with LUPO for any violation of the Labor Code.

The distinction between Articles 106 and 107 lies in the fact that Article 106 deals with "labor-only" contracting. Here,
by operation of law, the contractor is merely considered as an agent of the employer, who is deemed "responsible to
the workers to the same extent as if the latter were directly employed by him." On the other hand, Article 107 deals
with" job contracting." In the latter situation, while the contractor himself is the direct employer of the employees, the
employer is deemed, by operation of law, as an indirect employer. Petition for Certiorari is granted.

39. Aurora Land vs. NLRC, 266 SCRA 48 G.R. No. 114733, Jan. 2, 1997
Aurora Land Project Corp. vs. NLRC and Dagui
GR No 114733, Jan 2, 1997 266 SCRA 48
Facts
Private respondent Dagui was hired for 40 years to take charge of the maintenance and repair of the Tanjangco
apartments and residential buildings owned by petitioner. The daughter of the owner alleged that his work was
unsatisfactory and so dismissed private respondent. Dagui filed a complaint of illegal dismissal to the labor arbiter,
who in turn ruled in his favor. The NLRC affirmed the decision, but lowered the separation pay and deleted the
attorney’s fees. Petitioners thus filed a petition for certiorari implicating NLRC with grave abuse of discretion.
Issue(s)
Whether private respondent is a regular employee of the petitioner?

Held YES
The Court, consistent with the labor arbiter and NLRC’s ruling, is not convinced that private respondent is only a
contractual employee. To qualify as a contractual employee, one must have substantial capital investment (Sec.8, Rule
VIII, Book III of the IRR of the Labor Code). Petitioners showed no proof that private respondent was a contractual
employee.
All the elements of the four-fold test in identifying employer-employee relationship (power to hire, payment of wages,
power to fire, and power of control over conduct of employee) are present in the instant case. The fact the private
respondent was paid on a daily basis admits that he is an employee compensated by way of wages and not by profit.
The petitioner had indeed the power of dismissal over private respondent. The mere existence of the power of control
is enough to show its compliance with the four-fold test. Dagui works between 7AM to 4PM within the premises of the
petitioner, and thus, naturally has to receive supervision over his work from the petitioner.
There are two ways to determine a regular employee: (1) an employment shall be deemed to be regular where the
employee has been engaged to perform activities which are usually necessary or desirable in the usual business or
trade of the employer, and (2) any employee who has rendered at least one year of service, whether such service is
continuous or broken, shall be considered a regular employee (Art. 280, Labor Code). Whichever is applied does not
negate the fact that private respondent is a regular employee by definition. The petitioners contest that private
respondent is not a regular employee because he performs a specific job function, falling as an exception to Art. 280.
However, the same argument is disproved by petitioner’s act of not submitting a mandatory “report of termination” for
their alleged project employee, private respondent.
Due process requires the right to be heard and to defend himself with the option of counsel, noted as procedural and
substantive due process. The mandatory notice of hearing and notice of dismissal was absent in the instant case,
making private respondent, a regular employee, an illegally dismissed employee.
Dispositive: Private respondent Dagui is entitled to separation pay and full backwages.

40. Nagusara vs. NLRC, 290 SCRA 245 G.R. Nos. 117936-37 May 20, 1998

-The contractor must undertake to perform the job, or service free from control and direction of the principal in all
matters except as to the results thereof.
FACTS
Petitioners alleged that in 1981, they were hired as carpenters by Dynasty Steel Works owned by respondent Dy.
Dynasty was engaged in the business of making steel frames, windows, doors and other construction works. It was
contracted by Solmac Marketing to construct its building in Balintawak, Caloocan City.
On December 20, 1982, petitioners were prohibited from entering the work site at the Solmac compound. The security
guard showed them an order/notice dated December 18, 1982 issued by respondent Dy instructing him not to allow
petitioners to enter the premises as they were already dismissed from work.
On December 31, 1982, petitioners filed a complaint against respondent Lorenzo Dy for illegal dismissal, unfair labor
practice and non-payment of overtime pay, legal holiday pay and premium pay for holiday and rest day. On February
28, 1983, Labor Arbiter Bienvenido V. Hermogenes rendered a decision finding that petitioners were illegally
dismissed and ordered respondent Dy to reinstate them. Respondent Dy filed with the NLRC a "Motion for
Reconsideration, Set Aside Decision and/or Memorandum of Appeal" arguing that there was no employer-employee
relationship between him and petitioners. Respondent Dy alleged that respondent Amurao was the real employer of
petitioners because he was the one who hired them in fulfillment of his obligation to provide manpower for respondent
Dy's construction project.
Respondent Amurao also filed his own comment stating that he and respondent Dy entered into a sub-contracting
agreement whereby he undertook to supply the manpower for respondent Dy's construction project at Solmac
building. To comply with his obligation, respondent Amurao engaged the services of about thirty men which include
petitioners. Respondent Amurao stated that he had complete discretion in the selection, hiring and dismissal of said
workers; that he had direct control and supervision over the performance of their work; and that any complaint
against them were coursed through him.
On June 29, 1988, Labor Arbiter Felipe T. Garduque II issued a decision holding that the termination of petitioners'
services was illegal. On appeal, the NLRC set aside the decision of the Labor Arbiter. It dismissed the complaint on the
ground that there was no employer-employee relationship between petitioners and respondent Dy. It held that
respondent Dy was only an indirect employer of petitioners as they were actually employed by respondent Amurao
whom respondent Dy sub-contracted to provide labor for his construction project.
ISSUE
1. Whether or not the petitioners are the employees of Respondent Dy.
2. Whether or not the petitioners were illegally dismissed.
RULING
1. YES. The individual Premium Certifications issued by the SSS on April 11, 1983 show that Dynasty Steel Works
declared petitioners as its employees for the purpose of paying their premium. Dynasty paid petitioners' premium
from August 1981 to November 1982. Also, the payroll of Dynasty included petitioners. These pieces of evidence
sufficiently prove that petitioners were employees of respondent Dy. It would be preposterous for
respondent Dy to report petitioners as employees of Dynasty, pay their SSS premium as well as their
wages if it were not true that they were his employees.
The Supreme Court held that the supposed sub-contract between respondent Dy and respondent Amurao was merely a
subterfuge to avoid respondent Dy's obligations to petitioners. The records show that respondent Amurao was not a
legitimate job contractor engaged in the business of contracting out services to clients. A legitimate job contractor is
one who: (1) carries on an independent business and undertakes the contract work on his own account under his own
responsibility according to his own manner and method, free from the control and direction of his employer or
principal in all matters connected with the performance of the work except as to the results thereof; and (2) has
substantial capital or investment in the form of tools, equipment, machineries, work premises, and other materials
which are necessary in the conduct of his business. Respondent Amurao did not satisfy both requirements. It appears,
instead, that respondent Amurao was also an employee of respondent Dy who was tasked to screen and to supervise
the workers at respondent Dy's construction project at Solmac. It is clear from the foregoing that petitioners were
employees of respondent Dy.
2. YES. Respondent Dy stated in his comment that petitioners were not dismissed from work. Petitioners were
allegedly caught by the owner of Solmac Marketing having a drinking spree inside the compound. Hence, respondent
Amurao allegedly decided to transfer petitioners to another project, but petitioners opposed the transfer and filed a
complaint for illegal dismissal against respondent Dy.
The SC was not convinced. Respondent Dy's allegation is self-serving and not supported by substantial evidence. In
termination cases, the employer has the burden of proving that there was just cause for the employee's dismissal. In
this case, respondent Dy merely presented his own affidavit and that of respondent Amurao stating that petitioners
were caught drinking within the premises by the owner of Solmac. He did not present any other witness to
substantiate the statements contained in the affidavits. He did not even present as witness the owner of Solmac
Marketing who allegedly caught petitioners drinking inside the compound.
Dismissal is the ultimate penalty that can be meted to an employee. For dismissal to be legal, it must be based on just
cause which must be supported by clear and convincing evidence. Respondent Dy failed to adduce clear and
convincing evidence to support the legality of petitioners' dismissal.

41. PCI Automation Center vs. NLRC, G.R. No. 115920, Jan 29, 1996 (322 Phil. 536)

-Other than unpaid wages, the principal is not responsible for any other claim made by the employee of the contractor.
(Art 106)
Facts: Philippine Commercial International Bank (PCIB) entered into a Computer Services Agreement with petitioner PCI
Automation Center, Inc. (PCI-AC), under which petitioner obligated itself to direct, supervise and run the development of the
software, computer software applications and computer system of PCIB. On the other hand, PCIB agreed to provide the petitioner
with encoders and computer attendants, among others.
To comply with its obligation to procure manpower for the petitioner, PCIB engaged the services of Prime Manpower Resources
Development, Inc. (Prime). PCIB and Prime entered into an External Job Contract.
Private respondent Hector Santelices was hired by Prime and was assigned to petitioner as a data encoder to work on the 4th GL
Environment Conversion Project of PCIB.[5] However, on March 18, 1991, Prime decided to terminate private respondent’s
services after it was informed by the petitioner that his services were no longer needed in the project.[6]
Private respondent filed before the NLRC a complaint for illegal dismissal against Prime and PCIAC.[7] In his position paper,
private respondent prayed for the payment of his 14th month pay, 13th month pay, separation pay, unpaid service incentive leave,
unpaid vacation leave, termination pay, as well as moral and exemplary damages and attorney’s fees.[8]
However, Petitioner contends that private respondent, being a project employee, was validly dismissed when the project for which
he was hired was completed on March 15, 1991. The Labor Arbiter rendered a Decision finding that private respondent’s
dismissal was illegal. Prime and PCI-AC appealed to the NLRC. However, NLRC affirmed the decision of the Labor Arbiter, but
deleted the award of moral and exemplary damages and attorneys fees.
Issues:
1. Whether the private respondent was illegally dismissed.
2. Whether Petitioner is solidarily liable with Prime for all the monetary claims of private respondent.
Held:
1. The Court ruled that the private respondent was illegally dismissed. According to the Court, it would not disturb the finding of
NLRC that the testimony of the assistant vice-president and manager of Prime Manpower expressly and clearly admitted that 4th
conversion project, more particularly Tower II to which complainant was originally assigned is still an ongoing project, and not
yet completed. There was therefore no reason for private respondent’s dismissal on March 15, 1991 on the pretended ground
which is completion of the project.
2. The Court ruled that the Petitioner is solidarily liable with the Prime. According to the Court, the petitioner, through PCIB,
contracted Prime to provide it with qualified personnel to work on the computer conversion project of PCIB. Although the parties
in the External Job Contract are only Prime and PCIB, the legal consequences of such contract must also be made to apply to the
petitioner. Under the circumstances, PCIB merely acted as a conduit between the petitioner and Prime. The project was under the
management and supervision of the petitioner and it was the petitioner which exercised control over the persons working on the
project.
Under the law, any person enters into an agreement with a job contractor, either for the performance of a specified work or for the
supply of manpower, assumes responsibility over the employees of the latter. However, for the purpose of determining the extent
of the principal employer’s liability, the law makes a distinction between legitimate job contracting and labor-only contracting.
Article 106 of the Labor Code states:
Article 106. Contractor or subcontractor. -Whenever an employer enters into a contract with another person for the performance of
the former’s work, the employees of the contractor and of the latter’s subcontractor, if any, shall be paid in accordance with the
provisions of this Code.
In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this Code, the
employer shall be jointly and severally liable with his contractor or subcontractor to such employees to the extent of the work
performed under the contract, in the same manner and extent that he is liable to employees directly employed by him.
There is labor-only contracting where the person supplying workers to an employer does not have substantial capital or investment
in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and placed by such persons
are performing activities which are directly related to the principal business of such employer. In such cases, the person or
intermediary shall be considered merely as an agent of the employer who shall be responsible to the workers in the same manner
and extent as if the latter were directly employed by him.
In legitimate job contracting, no employer-employee relationship exists between the employees of the job contractor and the
principal employer. Even then, the principal employer becomes jointly and severally liable with the job contractor for the payment
of the employees wages whenever the contractor fails to pay the same. In such case, the law creates an employer-employee
relationship between the principal employer and the job contractor’s employees for a limited purpose, that is, to ensure that the
employees are paid their wages. Other than the payment of wages, the principal employer is not responsible for any claim made by
the employees.[19]
On the other hand, in labor-only contracting, an employer-employee relationship is created by law between the principal employer
and the employees of the labor-only contractor. In this case, the labor-only contractor is considered merely an agent of the
principal employer. The principal employer is responsible to the employees of the labor-only contractor as if such employees had
been directly employed by the principal employer. The principal employer therefore becomes solidarily liable with the labor-only
contractor for all the rightful claims of the employees.[20]
In this case, Prime is a labor-only contractor, the workers it supplied to the petitioner, including private respondent, should be
considered employees of the petitioner.[23] The admissions made by private respondent in his affidavits and position paper that he
is a regular employee of Prime are not conclusive on this Court as the existence of an employer-employee relationship is a
question of law which may not be made the subject of stipulation.

42. Jaguar Security and Investigation vs. Sales, 552 SCRA 295, G.R. NO. 162420 : April 22, 2008

-Right to Reimbursement -- The imposition of solidary liability does not preclude the principal from seeking reimbursement from
the contractor for whatever amount he may be adjudged to pay to the contractor’s employees. However, the claim for
reimbursement should be filed before the regular courts. It cannot be done through a cross-claim before the Labor Arbiter
because the claim for reimbursement does not have a reasonable causal connection with employer-employee relationship-it is a
civil obligation arising from a contract.
Facts: Jaguar is a private corporation engaged in the business of providing security services; one of their clients is Delta Milling
Industries, Inc. The respondents were hired as security guards by Jaguar and were assigned at the premises of Delta . Later on,
the security guards instituted an instant labor case before the labor arbiter alleging money claims for their services.

On July 1, 1999, petitioner Jaguar filed a partial appeal questioning the failure of public respondent NLRC to resolve its cross-
claim against Delta as the party ultimately liable for payment of the monetary award to the security guards.

In its Resolution dated September 19, 2000, the NLRC dismissed the appeal, holding that it was not the proper forum to raise the
issue. It went on to say that Jaguar, being the direct employer of the security guards, is the one principally liable to the
employees. Thus, it directed petitioner to file a separate civil action for recovery of the amount before the regular court having
jurisdiction over the subject matter, for the purpose of proving the liability of Delta . Jaguar sought reconsideration of the
dismissal, but the Commission denied the same.

Petitioner insists that its cross-claim should have been ruled upon in the labor case as the filing of a cross-claim is allowed under
Section 3 of the NLRC Rules of Procedure which provides for the suppletory application of the Rules of Court. Petitioner argues
that the claim arose out of the transaction or occurrence that is the subject matter of the original action. Petitioner further
argues that as principal, Delta Milling Industries, Inc. (Delta Milling) is liable for the awarded wage increases.

There is no question as regards the respective liabilities of petitioner and Delta Milling. Under Articles 106, 107 and 109 of the
Labor Code, the joint and several liability of the contractor and the principal is mandated to assure compliance of the provisions
therein including the statutory minimum wage. The contractor, petitioner in this case, is made liable by virtue of his status as
direct employer. On the other hand, Delta Milling, as principal, is made the indirect employer of the contractor's employees for
purposes of paying the employees their wages should the contractor be unable to pay them. This joint and several liability
facilitates, if not guarantees, payment of the workers' performance of any work, task, job or project, thus giving the workers
ample protection as mandated by the 1987 Constitution.

Issue: whether petitioner may claim reimbursement from Delta Milling through a cross-claim filed with the labor court? NO

Ruling: The jurisdiction of labor courts extends only to cases where an employer-employee relationship exists.

In the present case, there exists no employer-employee relationship between petitioner and Delta Milling. In its cross-claim,
petitioner is not seeking any relief under the Labor Code but merely reimbursement of the monetary benefits claims awarded
and to be paid to the guard employees. There is no labor dispute involved in the cross-claim against Delta Milling. Rather, the
cross-claim involves a civil dispute between petitioner and Delta Milling. Petitioner's cross-claim is within the realm of civil law,
and jurisdiction over it belongs to the regular courts.

Moreover, the liability of Delta Milling to reimburse petitioner will only arise if and when petitioner actually pays its employees
the adjudged liabilities. Petition is denied.

43. Kamaya Point Hotel vs. NLRC, G.R. No. 75289, August 31, 1989

-There is no law that mandates the payment of 14 th month pay. Verily, a 14th month pay is basically a bonus and,
therefore, not demandable.
Facts: Respondent Memia Quiambao with thirty others who are members of private respondent
Federation of Free Workers (FFW) were employed by petitioner as hotel crew. On the basis of the
profitability of the company's business operations, management granted a 14th month pay to its
employees starting in 1979. In January 1982, operations ceased to give way to the hotel's conversion
into a training center for Libyan scholars. However, due to technical and financing problems, the
Libyans preterminated the program on July 7, 1982, and petitioner allegedly suffered losses amounting
to P2 million and in the end totally closed its business. Private respondent Federation of Free Workers
(FFW), filed with the Ministry of Labor and Employment a complaint against petitioner for illegal
suspension, violation of the CBA and non-payment of the 14 th month pay. Records however show that
the case was submitted for submission on the sole issue of alleged non-payment of the 14th month pay
in the year 1982. Labor Arbiter ordered petitioner to pay the 14 th month pay to respondents for the year
1982. NLRC affirmed the decision.
Issue: Whether or not the 14th Month Pay can be withdrawn without violating article 100 of the Labor
Code.
Held: It is patently obvious that Article 100 is clearly without applicability.
Article 100. Prohibition against elimination or diminution of benefits. Nothing in this Book shall be construed to eliminate or
in any way diminish supplements, or other employee benefits being enjoyed at the time of promulgation of this Code.

In the case at bar, petitioner extended its 14th month pay beginning 1979 until 1981. What is
demanded is payment of the 14th month pay for 1982. Indubitably from these facts alone, Article 100
of the Labor Code cannot apply. Moreover, there is no law that mandates the payment of 14 th month
pay. This is emphasized in the grant of exemption under Presidential Decree 851 (13th Month Pay Law)
which states: "Employers already paying their employees a 13th month pay or its equivalent are not
covered by this Decree." Necessarily then, only the 13th month pay is mandated. Verily, a 14th month
pay is a misnomer because it is basically a bonus and, therefore, gratuitous in nature. The granting of
the 14th month pay is a management prerogative which cannot be forced upon the employer. It is
something given in addition to what is ordinarily received by or strictly due the recipient. It is a gratuity
to which the recipient has no right to make a demand.

44. Grey vs. Insular Lumber, 93 Phil 807, G.R. No. L-535. September 28, 1953
While as a general rule, bonus is a liberal act on the part of the employer, the bonus in this case is part of a contract, hence, cannot
be eluded by the employer.
FACTS: On September 14, 1928, plaintiff, a consultant engineer in lumber business, and A. E. Edgcomb, President of
the defendant corporation, entered into a contract of employment with Mr Grey. Pursuant to the terms of the contract
of employment, plaintiff came to Fabrica, Negros Occidental, on October 28, 1928, and assumed his duties as lumber
manufacturing expert. On August 3, 1929, in addition to his original employment, he was designated general
superintendent, and on October 1, 1929, he was made general manager to take the place of Alf Welhaven, resigned, and
due to some disagreement with the president of the defendant, A. E Edgcomb, he was dismissed on March 22, 1932.
On October 30, 1939, he instituted the present action, and on October 7, 1941, the court decided the case as pointed
out in the early part of this decision.
Plaintiff brought this action in the Court of First Instance of Negros Occidental to recover from defendant certain
amounts of money for services rendered to the latter. After trial, the court rendered judgment sentencing defendant to
pay to plaintiff the sum of P42,916.48.
The plaintiff contends that he is entitled to the bonus in the amount of $10,000.00
ISSUE: Whether or not the plaintiff is entitled to the bonus amount.
RULING: YES.  In the supplementary letter, Exhibit B, the following stipulation appears: "In addition to the $10,000
salary and bonus referred to in my letter of this date, you are to receive $15,000 plus the bonus at the end of the year,
provided that, in the opinion of the President of the Company, your services have benefited the Company to the extent
of $100,000." In the foregoing stipulation it appears clear that the company agreed to pay plaintiff a bonus at the end
of every year of service subject only to the condition that his services should bring to the company a profit of not less
than $100,000. This seems to be the only condition for the granting of the bonus. Indeed, this condition is reasonable
enough for, if that profit is not obtained, or even if obtained but not through his services, plaintiff would have no right
to the bonus stipulated. It is true that in the letter Exhibit A, in referring to the payment of bonus, the following
sentence also appears, "you are to receive a bonus the same as the other Americans on our staff when the insular pays
dividend." But, as explained by plaintiff, that sentence only meant that the bonus should be computed in the manner
the bonus given to other Americans is computed but not that its payment should be dependent upon the giving of
bonus to other American employees.

The SC found the explanation reasonable considering the peculiar nature of the contract of employment of the plaintiff
with the company. For one thing, bonus is a voluntary act dependent upon the goodwill of the employer. Here it ceased
to be a unilateral act. It became contractual. Here it was clearly agreed that bonus may be given to plaintiff provided
that certain condition is met and if this condition is met the obligation to pay the bonus cannot be eluded. It does not
appear that a similar condition was imposed upon other American employees, and there being no such showing, it is
unfair to place plaintiff under a similar predicament more so when the condition imposed refers to the special service
to be rendered by the plaintiff. Considering that plaintiff has rendered this service and has given to the company the
profit expected of him, it is fair and just that he be given the bonus to which he is entitled under the contract.
The contention that the executive committee of the board of directors of the defendant corporation never authorized
the payment of such bonus on the special dividend of 20 per cent declared on October 25, 1930, cannot defeat this
claim of the plaintiff considering that this is a special feature of the contract of employment entered into between
plaintiff and defendant. There is nothing in that contract to indicate that that bonus should be subject to approval by
the board of directors.

45. Lusteveco vs. CIR, 15 SCRA 660, G.R. No. L-18683      December 31, 1965
There is no showing that the Christmas bonus was made in the collective bargaining agreement between LEA and LUZON as part
of wages or salaries. Therefore, the grant of said bonus is contingent upon the profits realized during the year. The reduced
Christmas bonus was a necessary consequence of a reduced profit in that year.
FACTS: The Luzon Stevedoring Corporation (LUZON for short) recognized the Lusteveco Employees Association-
CCLU (hereafter called LEA) as the sole collective bargaining representative of its employees working in its various
departments. On March 15, 1957 it entered into a collective bargaining agreement with LEA. In May 1958, during the
existence of the aforestated collective bargaining agreement, LEA recruited and accepted members of LUZON's police
force, contrary to paragraph (c), Article I of the collective bargaining agreement.
In June, 1958 LUZON dismissed eight security guards, all LEA members, for various offenses. Without previous notice
and/or demand LEA declared a strike against LUZON on June 11, 1958.  LEA and LUZON then arrived at an
agreement through the suggestion of the Court of Industrial Relations to accept the strikers back to work and the
Company shall accept them under the terms and conditions obtaining before the strike.
On December 22, 1958 LUZON suspended 7 security guards all of whom were LEA members and filed a motion in the
Court of Industrial Relations praying to make such suspensions into permanent dismissals. The 1958 Christmas bonus
was reduced from the usual 15 days.
On January 2, 1959 LEA charged LUZON before the Court of Industrial Relations with unfair labor practice allegedly
consisting of dismissal of LEA members, reduction of Christmas bonus, and others.
In its petition for certiorari before the Supreme Court, LEA alleged that LUZON reduced the Christmas bonus from
fifteen to ten days' pay in violation of the Court Order "to accept the strikers under the terms and conditions obtaining
before the strike," which "created the notion among the petitioners (workers) that such reduction was aimed at
bringing them to their knees.
ISSUE: Whether or not the reduction of Christmas bonus from 15 days to 10 days violated the order of the CIR to
accept the strikers under the terms and conditions obtaining before the strike.
RULING: NO. The record has nothing to substantially support a finding, and the lower court's decision made none,
that it created an idea among LEA's workers that such reduction was aimed at "bringing them to their knees." The
evidence shows that the reduced bonus was granted uniformly in all departments of LUZON, including those manned
entirely by workers of another union. Moreover, the report of the examiners of the Court of Industrial Relations on the
financial status of LUZON for the year 1958 indicates a decrease in percentage of profit for that year in comparison
with previous years.
As a rule, a bonus is an amount granted and paid to an employee for his industry and loyalty which contributed to the
success of the employers business and made possible the realization of profits. It is an act of generosity for which the
employee ought to be thankful and grateful. It is also granted by an enlightened employer to spur the employee to
greater efforts for the success of the business and realization of bigger profits. From the legal point of view, a bonus is
not a demandable and enforceable obligation. It is so when it is made a part of the wage or salary or compensation. In
such a case the latter would be a fixed amount and the former would be a contingent one dependent upon the
realization of profits. If there be none, there would be no bonus.
Here, there is no showing that the Christmas bonus was made in the collective bargaining agreement between LEA and
LUZON a part of wages and salaries. Therefore, as stated above, the grant of said bonus is contingent upon the profits
realized during the year. The reduced 1958 Christmas bonus was a necessary consequence of a reduced profit in that
year. And there being no clear showing that the reduction of the bonus was aimed to discriminate against LEA
members, the trial court's finding that such reduction constituted no anti-union activity should not be disturbed.

46. Phil. Education Co. vs. CIR, 92 Phil 381, GR No. L-5103, Dec 24, 1952
-Bonus is considered part of wages if it is given in a fixed amount without any condition, regardless whether or not profits are
realized.
In this case, bonuses had been given to the employees at least in three previous years; P90,706.36 has been set aside for payment
as bonus to its employees and laborers; and the payment thereof was withheld because of the strike staged by the employees and
laborers for more favorable working conditions which was declared legal by the respondent court. Justice and equity demand that
bonus already set aside for its employees and laborers be paid to them.

FACTS: A demand was made by the UNION of Philippine Education Employee on the respondent for the payment of the bonus
corresponding to the share of the employees and laborers in the profits made by it since they contend that they were part
owner and laborer. But by reason of the union activities of the said employees and laborers, the respondent refused to pay the
same. Philippine Education Co denied the allegations of the respondent union that it had considered its employees and laborers
as part owners of its business and that for that reason granted them a share in the profits annually in the form of bonuses, the
truth being that bonuses have been paid by the company in its discretion, merely as a gift to deserving employees as it saw fit.
The Court of Industrial Relations ruled in favor of the Union and ordered Philippine Education Co. to pay 90,706.63 pesos

ISSUE: Whether they are entitled for bonuses

HOLDING Yes. As a rule, a bonus is an amount granted and paid to an employee for his industry and loyalty which contributed to
the success of the employer's business and made possible the realization of profits. It is an act of generosity of the employer for
which the employee ought to be thankful and grateful. It is also granted by an enlightened employer to spur the employee to
greater efforts for the success of the business and realization of bigger profits. From the legal point of view a bonus is not a
demandable and enforceable obligation. It is so when it is made a part of the wage or salary or compensation . In such a
case the latter would be a fixed amount and the former would be a contingent one dependent upon the realization of profits.
If there be more, there would be no bonus.

As heretofore stated the payment of bonus is not from the legal point of view a contractual and enforceable obligation. But
the petitioner is not sued before a court of justice. It is before the Court of Industrial Relations. And according to the law of
its creation it may make an award for the purpose of settling and preventing further disputes. And taking into consideration
the facts and circumstances of the case — that bonuses had been given to the employees at least in three previous years;
that the amount of P90,706.36 has been set aside for payment as bonus to its employees and laborers and the reason for
withholding the payment thereof was the strike staged by the employees and laborers for more favorable working conditions
which was declared legal by the respondent court — justice and equity demand that bonus already set aside for its
employees and laborers be paid to them. The award would still be within the ambit of the respondent court's power and
function which is mainly to prevent further disputes and perhaps strikes which is so detrimental to both labor and
management and to the public weal. Whether this petition be deemed an appeal by certiorari under Rule 44 or one of
certiorari under Rule 67, it is clear that the respondent court had under and pursuant to the law of its creation the power and
authority to make the award complained of. The petition is Denied and the decision of the CIR was upheld.

47. MERALCO vs. Quisumbing, G.R. No. 127598, January 27, 1999
As a rule, a bonus is not a demandable and enforceable obligation; it may nevertheless be granted on equitable considerations as
when the giving of such bonus has been the company's long and regular practice. To be considered a "regular practice," the giving
of the bonus should have been done over a long period of time, and must be shown to have been consistent and deliberate.
As company practice, the Christmas bonus has ripened into benefits enjoyed by MERALCO employees. Consequently, it can no
longer be withdrawn by the company as this would amount to a diminution of the employee's existing benefits. Thus, the grant of
Christmas bonus was proper, but not the two-month special Christmas bonus since there was no recognized company practice of
giving a two-month special grant.
Meanwhile, the signing bonus is a grant motivated by the goodwill generated when a CBA is successfully negotiated and signed
between the employer and the union. In the present case, this goodwill does not exist.
Facts: MEWA is the duly recognized labor organization of the rank-and-file employees of MERALCO. On September 7, 1995,
MEWA informed MERALCO of its intention to renegotiate the terms and conditions of their existing 1992-1997 Collective
Bargaining Agreement (CBA) covering the remaining period of two years starting from December 1, 1995 to November 30, 1997.
MERALCO signified its willingness to re-negotiate through its letter dated October 17, 1995 and formed a CBA negotiating panel
for the purpose. On November 10, 1995, MEWA submitted its proposal to MERALCO, which, in turn, presented a counter-
proposal. Thereafter, collective bargaining negotiations proceeded. However, despite the series of meetings between the
negotiating panels of MERALCO and MEWA, the parties failed to arrive at “terms and conditions acceptable to both of them.”
On April 23, 1996, MEWA filed a Notice of Strike with the National Capital Region Branch of the National Conciliation and
Mediation Board (NCMB) of the Department of Labor and Employment (DOLE) which was docketed as NCMB-NCR-NS-04-
152-96, on the grounds of bargaining deadlock and unfair labor practices. The NCMB then conducted a series of conciliation
meetings but the parties failed to reach an amicable settlement. MERALCO filed a petition to let the Secretary of DOLE to
assume jurisdiction over the case which was granted.
Issue: Whether the members of MEWA are entitled to benefits given as bonuses, being negotiated in the CBA.
Held: The members of MEWA are entitled to the benefits although in the form of benefits which is a subject of the negotiation of
CBA.
As a rule, a bonus is not a demandable and enforceable obligation; it may nevertheless be granted on equitable consideration as
when the giving of such bonus has been the company’s long and regular practice. To be considered a “regular practice,” the giving
of the bonus should have been done over a long period of time, and must be shown to have been consistent and deliberate.
The ruling in National Sugar Refineries Corporation vs. NLRC: “The test or rationale of this rule on long practice requires an
indubitable showing that the employer agreed to continue giving the benefits knowing fully well that said employees are not
covered by the law requiring payment thereof.”
In this case, the record shows the MERALCO, aside from complying with the regular 13th month bonus, has further been giving
its employees an additional Christmas bonus at the tail-end of the year since 1988. While the special bonuses differed in amount
and bore different titles, it cannot be denied that these were given voluntarily and continuously on or about Christmas time.
The considerable length of time MERALCO has been giving the special grants to its employees indicates a unilateral and
voluntary act on its part, to continue giving said benefits knowing that such act was not required by law.
Indeed, a company practice favorable to the employees has been established and the payments made by MERALCO pursuant
thereto ripened into benefits enjoyed by the employees. Consequently, the giving of the special bonus can no longer be withdrawn
by the company as this would amount to a diminution of the employee’s existing benefits.

48. Maternity Children's Hospital vs. Sec. of Labor, 174 SCRA 632, G.R. No. 78909 June 30, 1989
The DOLE found out that there was an underpayment of wages. The Regional Director issued a compliance order to pay the
employees including those who have resigned. Held: Not valid. The Compliance Order will only apply to employees still in the
employ of the employer, and not to those whose employment have been terminated.
FACTS: Petitioner is a semi-governmental hospital in Cagayan De Oro and Employing forty-one (41) employees.
Aside from salary and living allowances, the employees are given food, but the amount of which is deducted from their
respective salaries. On May 3, 1986, ten (10) employees filed a complaint with the Regional Director of Labor and
Employment, Region 10, for underpayment of their salaries and ECOLAS. Consequently, the Regional Director
directed two of his labor standard and welfare officers to investigate and ascertain the truth of the allegations in the
complaint
Based on the report and recommendation, the Regional Director issued an order dated August 4, 1986, directing
payment of ₱ 723, 888.58, to all the petitioner’s employees. The Secretary of Labor likewise affirmed the Decision and
dismissed the Motion for Reconsideration of the petitioner.
In a petition for certiorari, petitioner questioned the jurisdiction of the Regional Director and the all-embracing
applicability of the award involving salary differentials and ECOLAS, in that it covers not only the hospitals employees
who signed the complaints, but also those who are not signatories to the complaint, and those who were no longer in
the service of the hospital at the time the complaint was filed.
ISSUES:
1. Whether or not the Regional Director had jurisdiction over the case; and
2. Whether or not the Regional Director erred in extending the award to all hospital employees?
HELD:
1. The answer is in the affirmative the Regional Director has a jurisdiction in this labor standard case. This is Labor
Standard case, and is governed by Article 128 (b) of the Labor Code , as amended by E.O. No. 111.
“Labor standards refer to the minimum requirements prescribed by existing laws, rules, and
regulations relating to wages, hours of work, cost of living allowance and other monetary and welfare
benefits, including occupational, safety, and health standards (Section 7, Rule I, Rules on the Disposition
of Labor Standards Cases in the Regional Office, dated September 16, 1987)”.
Under the present rules, a Regional Director exercises both visitorial and enforcement power over labor standards
cases, and is therefore empowered to adjudicate money claims, provided there still exists an employer-employee
relationship, and the findings of the regional office is not contested by the employer concerned. We believed…that
even in the absence of E. O. No. 111, Regional Directors already had enforcement powers over money claims,
effective under P.D. No. 850, issued on December 16, 1975, which transferred labor standards cases from the
arbitration system to the enforcement system.
2. The Regional Director correctly applied the award with respect to those employees who signed the complaint, as
well as those who did not sign the complaint, but were still connected with the hospital at the time the complaint was
filed. The justification for the award to this group of employees who were not signatories to the complaint is that the
visitorial and enforcement powers given to the Secretary of Labor is relevant to, and exercisable over
establishments, not over individual members/employees, because what is sought to be achieved by its exercise is
the observance of, and/ or compliance by such firm/establishment with the labor standards regulations. However,
there is no legal justification for the award in favor of those employees who were no longer connected with the hospital
at the time the complaint was filed. Article 129 of the Labor Code in aid of the enforcement power of the Regional
Director is not applicable where the employee seeking to be paid is separated from service. His claim is purely money
claim that has to be subject of arbitration proceedings and therefore within the original and exclusive jurisdiction of the
Labor Arbiter